Is it wise to use credit card to generate airline miles?

At a leadership conference this past week someone was telling me to get a Capital One credit card for my business. She said when you place your orders pay with the credit card and then right after that pay your card off immediately online. She said the Capital One card gives you credit and you can get free airline tickets. This way I don’t have to pay for airfare for national conference and leadership conference. Is this a good idea or is it insane?—Female seeking to make good financial decisions

Damon Says:

INSANE!! Not only is it not wise to use credit cards to generate airline miles. It’s not wise to use credit cards PERIOD! Unless you’re ok with the idea of paying double digit interest rates, fees on top of fees, and trading airline miles, gifts and other non-essentials for DEBT!

Capital One poses the question “what’s in your wallet?” If you have a Capital One Card in your wallet, there’s a high probability that you’re lacking something that should be in your wallet. Something that’s far more valuable and far more powerful—MONEY!

I was recently on a television talk show and the host of the show expressed the same sentiments that this female said to you—use the credit card and pay it off immediately. Here’s the truth. Everyone you meet will say that they pay off their credit card balances EVERY MONTH. However, statistics reveals that only 40 percent of Americans pay their credit card balances off every month. In other words, most people are outright lying!

Being the nerd that I’m, I had to dig a little deeper. The question I had in mind was, “why would a person have to pay off a credit card balance EVERY MONTH?” Here’s what I discovered after observing hundreds of “real life” clients who actually pay off their credit card balances every month. The vast majority who paid off their credit cards balances EVERY MONTH did so because after paying off the credit card, there wasn’t enough money remaining from their paycheck to pay the rest of the bills, buy food, and have a life. Therefore EVERY MONTH, they were forced to use credit cards to supplement their income. The credit cards created the illusion that their income was higher than it really was. They were living above their means—a sure-fire plan to stress, frustration and poverty!

I’ve heard every argument under the sun to justify the necessity of a credit card. People fail to realize that I was a “banker” before I was a “consumer advocate”. I know the tricks of the trade. Airline miles and cash-back rewards are nothing more than bait. Credit cards companies are going fishing and you’re the big catch!

In most cases cash-back rewards are tiered and capped. You’ll have to spend a certain amount before you’re awarded the percentage being promoted in large print. For example: 1 percent cash-back rewards don’t kick in until you’ve spent $3,000. Until then the reward is much smaller. The 5 percent gas rewards are awarded after you spend $100 each month. It resets every month. For the sake of simplicity, let’s assume you get 1 percent in cash-back rewards. If you were to get a $500 cash-back reward, you’d have moved $50,000 through your credit card. Credit card companies generally offer you 1 air mile for every dollar spent. To get a $250 airline ticket, you’ll need 25,000 air miles. That means you’d have to spend $25,000. Do the math. Each cash-back reward or airline mile is worth about ONE PENNY! I’ll trade you pennies for dollars any day of the week.

Furthermore, you’re prone to spend up to 30 percent more when using credit cards as opposed to using cash. Ever wonder why department stores are offering you 10 percent discounts if you open a store credit card? You’ll spend more, you’re more loyal and they’ll make a killing in finance charges. In fact, the fastest growing division and most department stores and car dealerships is the finance department. McDonald’s recently did a study and discovered the average ticket sales are up 25 percent when a person uses credit cards as opposed to cash. I can imagine that McDonald is “loving it”!

American Express? Leave home without it! Visa Card? They’re everywhere you shouldn’t be! Master Card? If there’s some things that money can’t buy, I’ve yet to come across it! Discover Card? If it pays to discover, why are they charging you interest and fees as opposed to sending you checks?

But Damon—It’s “impossible” to live without credit cards. You “have” to have a credit card. I wonder who promulgated this idea? I’ll give you a hint—Institutions who are in the business of selling credit cards.

People use credit cards for three reasons—1. Convenience—Get a debit card. It works just like a credit card but you don’t accrue debt. 2. Emergency—Does going into debt when you’re down on your luck sound like a good plan? You should save money in the bank for emergencies. Buy things they can’t afford in an attempt to keep up with the “Joneses” Who are the “Joneses”? The “Joneses” are an illusionary model of success! Stop fooling yourself!

You can become a member of an Airline Company’s loyalty program and be awarded frequent flyer airline miles—no strings or credit card debt attached.